CtW Investment Group, an advisory firm working with some of Uber’s largest and most influential shareholders, has taken issue with the company CEO Dara Khosrowshahi‘s whopping pay packet.
The investment group are now calling for shareholders to vote against Uber’s Say-On-Pay proposal regarding Khosrowshahi’s compensation package, amidst a global pandemic which has seen Uber slash thousands of jobs and drivers struggle to remain ahead of financial ruin.
“Say-On-Pay” is a legal term that describes a corporate governance rule that gives shareholders the right to vote on the compensation plans of their companies’ highest-earning executives.
In an open statement to shareholders, published by CtW Investment Group, attention to Khosrowshahi’s “golden hello” sign-on package when he joined Uber in 2017 was detailed.
As part of his package, he would receive an equity award worth $100 million if Uber’s market worth reaches $120 billion and manages to stay there for longer than 90 days. The statement reads: ”Uber’s CEO Dara Khosrowshahi has received an overly generous compensation package to join the company, with a significant amount of equity that lacks performance conditions and has little retentive value.
“He was poached from Expedia in 2017, and while he forfeited a significant amount of options when he left that company, it does not fully excuse the exorbitant cost Uber paid to bring Khosrowshahi on board. In fact, it is unclear whether the Expedia options he forfeited would ultimately have had any value at all with exercise prices of $95 per share (the company’s stock price closed on April 14, 2020 at $61.48 and a portion of the options required a stock price achievement of $170 in order to vest).
“The sign-on package, which does not encourage long-term retention, has become increasingly untenable as the company’s workers struggle to make ends meet amid the COVID-19 outbreak.”
Dara Khosrowshahi earned a tasty $42.4 million in 2019.
As well as raising concerns over Khosrowshahi’s pay-package, CtW scrutinised the performance of Chairman of the Audit Committee, John Thain, who they say is “an unsuitable steward for long term shareholders’ interests”.
The statement continued: “Even before the current global public health crisis, Uber’s stock performance faced an uphill battle, with the company underperforming the S&P500 since mid-August 2019.
“As an approximately 32% stock price decline since February 2020 demonstrates, Uber’s financial footing is even more precarious in the age of the coronavirus. We worry as long term shareholders that the company is inadequately prepared for its accelerated goal of profitability by the end of 2020. For the reasons below, we urge you to vote AGAINST the following:
Item 1h – As the Chairman of the Audit Committee, John Thain is an unsuitable steward for long term shareholders’ interests. A holdover of the Travis Kalanick era, Director Thain has a history of poor business judgment as exhibited by his past leadership of Merrill Lynch and CIT. We are also concerned that his professional history with Uber’s current CFO may compromise Thain’s ability to provide adequate oversight over the company’s financial statements, which is critical at this stage in Uber’s growth.
Item 2 – Uber’s CEO, Dara Khosrowshahi, has received an overly generous compensation package to join the company, with combined equity valued at over $100 million at the grant date on terms that do not encourage long-term retention – a textbook “golden hello.”
CtW also highlighted the fact that Uber continues to face regulatory hurdles related to its independent business model.
With a new law that reclassifies independent contractors as statutory employees in California and similar laws in other states, such as New York and Massachusetts, Uber is likely to bear additional operational costs related to payroll taxes and workers’ compensation insurance, which is highly likely to impact profits of the firm’s investors.
While a recent court decision in Brazil held that Uber drivers are not considered employees, globally the company faces regulatory issues ranging from losing its operating licence in London, one of Uber’s top five cities for global bookings, to potential caps on commissions and surge pricing in India, a country which accounts for 11% of Ubers’ global revenue. This growing regulatory scrutiny in several key markets presents Uber with an unprecedented challenge to the core of its business model.
The statement concluded: “As long term shareholders, we must send Uber’s board a clear message that the company’s inadequate performance in the last year and obstacle ridden path to profitability requires stronger oversight over the company’s financial reporting and executive pay practices going forward. Therefore, we urge you to vote AGAINST Items 1h (Election of John Thain) and Item 2 (MSOP).”
Image credit: Flickr- Ecole Polytechnique